Contents 1. Top Issues and Considerations 3 2. Shale Industry Moves 4 3. Ohio Shale Infrastructure 7 4. Government 10 5. School Districts 11 2
1. Top Issues and Considerations Considerations Top Issues Interest from drillers is shifting south into Harrison, The unveiling of well results are redefining the shale Belmont, Monroe, Guernsey and Noble counties, landscape for several players. Chesapeake, an early lessee which have become the drilling hot spot in eastern in the Utica rush, seems slightly out of target at the Ohio. The trend is said to lead to Washington County, moment, while Gulfport is well positioned. Aubrey “ the next ground zero ” for the Ohio O&G boom. McClendon’s American energy, which has received funds from PE firms and is now acquiring acreage, is running ads and trying to lease land in these counties. Work on the $1.5-billion Blue Racer Midstream Plenty of other infrastructure projects are also progressing, project is progressing nicely. The $500-million but Blue Racer is one of the biggest. The positive Natrium cryogenic processing plant in northern West development of this major project is good news for drillers, Virginia is up and running, and two other processing who will be able to increase their production. Other big plants, each capable of handing 200 Mmcf/d, will be infrastructure projects competing for who will be first to put built in Monroe and Mahoning counties. The Blue processing and pipeline projects into service are Bluegrass Racer project also secured a five-year, $800-million Pipeline and ATEX. credit facility, which can be expanded to $1 billion in the future. Chesapeake cut a total of 1,200 jobs this year, with The cuts are part of the company’s efforts to restructure, the latest swing of the ax hitting its Oklahoma following the departure of Aubrey McClendon. Carl Icahn – operations the hardest (640 jobs cuts). Its PR who owns close to 10% of the company now – is an department in the Utica and Marcellus was also influential force pushing for these changes. Although CEO eliminated, as well as many other jobs across the Doug Lawler said the restructuring is now done, he also organization. mentioned there could be “future asset sales”. This is in line with corporate raid tactics, and raises speculations that Chesapeake might soon – or already - be on sale. 3
2. Shale Industry Moves E&P company news Chesapeake Energy reported Q2 profit of $457 million, a sharp drop from $929 • million YOY, but last year's Q2 was bolstered by the sale of its gas gathering and processing business. Total revenue improved 38% to $4.67 billion, and average daily production increased 6.3% to 369 Bcfe of natural gas. CEO Doug Lawler praised the Utica play, and expects its production to increase sharply in late 2013, thanks to the start-up of gas processing facilities. American Energy Partners already raised $1.2 billion in equity and debt financing • for deals in Ohio, much of it from PE firms Energy & Minerals Group ($500 million) and First Reserve ($200 million). American Energy is also buying drilling leases on more than 22,500 acres in southeastern Ohio for $284.3 million, and acquired some properties from Shell. Gulfport Energy produced less oil than a year ago after selling off its Permian wells • and acreage to Diamondback, but saw a big increase in production of natural gas and NGLs. Natural gas production was up more than sixfold, while liquids production more than doubled. Gulfport increased their Utica Shale acreage by an additional 8,000 acres, and now own 145,000 leased Utica acres. The company also signed 10-year agreements with both Dominion East Ohio and Dominion Transmission to transport eastern Ohio’s natural gas to the Midwest and connecting pipelines. Antero Resources ' borrowing base under its bank credit facility was increased to • $2 billion, $250-million more than its previous borrowing base. In addition, lender commitments under the facility were increased by $300 million to $1.75 billion. 4
2. Shale Industry Moves E&P company news (cont.) Hess Energy reported Q2 net income of $1.431 billion, up from $549 million YOY. • Total revenue increased 23.6% to $4.1 billion. Q2 production was 341 MBOE/d, down 20.5% YOY, due in part to asset sales in Russia, the U.K. and Azerbaijan. This was offset by higher oil and gas prices and higher Bakken production. Anadarko Petroleum reported earnings of $929 million, compared with a year- • earlier loss of $89 million. Revenue increased 8.5% YOY to $3.5 billion. Anadarko said daily sales volume increased to 750,000 Boe/d from 742,000 last year. Halcon Resources ’ Q2 revenues reached $214.3 million, compared to $23.3 • million a year earlier. Net production increased 646% YOY to an average of 29,165 Boe/d. Q2 production was comprised of 83% oil, 5% NGLs and 12% natural gas. The Utica is also drawing interest from new players: U.S. Petroleum Exploration , a company created by an investor from the • Mahoning Valley and Canada, set up shop in the Mahoning Valley to play a part in the Utica development. It has acreage in Coshocton, Guernsey and Belmont counties. Magnum Hunter Resources sold its acreage in the Eagle Ford to turn its focus to • the Utica, explaining that the EUR of each well in the Utica could be double (or greater) than what it was seeing in the Eagle Ford. 5
2. Shale Industry Moves Other E&P News Representatives from the Utica Landowners Group of Coshocton and Muskingum • counties, which has hundreds of landowners in each county and about 90,000 acres of potentially oil-rich land enrolled, have joined together to get the most bang for their acreage buck from energy companies, without the need for attorney fees. Their minimum position reportedly stands at $5,000 an acre and 20% royalty. EQT and Green Field Energy Services successfully completed multiple fracturing • stages using pumps powered by 100% "field" gas supplied directly from a nearby Marcellus natural gas well. Private equity Eclipse Resources acquired Oxford Oil, with approximately 184,000 net acres in • Ohio and 13.8 Bcfe of proved developed producing reserves. Eclipse now owns 90,000 acres in Belmont, Guernsey, Monroe, Noble and Harrison counties. 6
3. Ohio Shale Infrastructure Midstream More crude oil is moving around the U.S. on trucks, barges and trains than at any point since the government began keeping records in 1981. New pipeline projects are popping up and existing ones are progressing: Antero Resources will spend over half a billion dollars on a pipeline to transport • water from the Ohio River to fracking sites in Ohio and West Virginia. The Rockies Express pipeline is looking to to reverse its direction of flow in order • to move gas westward out of the Marcellus/Utica plays and into Midwest markets. Gulfport signed 10-year agreements with both Dominion East Ohio and Dominion • Transmission to transport up to 100 Mmcf /d of eastern Ohio’s natural gas to the Midwest and connecting pipelines. Another 150 Mmcf/d of capacity will be available for shipment to two pipelines by late 2014. Hess agreed to terms with PVR Partners for it to build, own and operate a 45-mile • natural gas trunkline of at least 20 in. and 450-Mmcfd capacity to serve Hess's lean gas production in eastern Ohio. The total capital investment will be in the range of $125-150 million. Kinder Morgan and MarkWest signed a letter of intent to form a midstream JV to • pursue two projects in Ohio, Pennsylvania and West Virginia: The first project is a 400-MMcf/d cryogenic processing complex in Tuscarawas County, Ohio, while the second involves the development of a 200,000-bpd, C2+ NGL pipeline. The two are also planning another $1-billion natural-gas processing plant and pipeline in Uhrichsville, Ohio to carry liquids to the Gulf Coast. Sunoco Logistics Partners ’ pipeline, which can handle up to 50,000 barrels per • day, will begin to ship ethane extracted in western Ohio and western Pennsylvania to refineries in Canada. Sunoco also plans to construct an 85,000-barrel-per-day pipeline to move petroleum from Fostoria, Ohio to Pittsburgh, Pa. 7
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